FRONT PAGE CONTRIBUTOR

Tim Geithner Makes a Pair of Scary Statements

In my business, and I’ll wager in your business too, you read contracts. Carefully. Because the contract defines the relationship between the two parties, and signifies a meeting of the minds. If you screw up, and the contract doesn’t mean what you thought it meant, well, shame on you.

Back in the ’90s, oil and gas prices were low and the Feds wanted to encourage drilling and development of oil and gas resources in the deepwater Gulf of Mexico. It did what was in its interest at the time: it offered to lease certain Federal Offshore blocks (all in deepwater, at or beyond the frontier of what was technically feasible at the time) with zero royalty (typically 1/8th share of revenue belongs to the Feds in deepwater). But they screwed up & left out the language that reimposed the royalty if prices shot up.

Oil companies evaluated the lease terms and bid accordingly. The MMS evaluated the sufficiency of the high bids, and formally entered into a lease — a contract — with the winning bidders.

Wells were drilled. Some were dry. Some worked and those fields were developed.

Then prices went up. The government realized its mistake and cried “foul!” The wanted to amend the contract to include the missing language.

Some of the benefiting companies chose not to fight the Feds. Some sued. Now the Obama Administration wants to impose a special excise tax on the companies who pursued their claim in court.

Which brings us to Scary Statement #1, which is essentially “From each, according to his ability…”:

Geithner said the additional taxes “can be absorbed” by the oil and gas companies, given the billions of dollars they have earned from high energy prices.

Which indicates 1) that Mr. Geithner subscribes to the Scrooge McDuck theory, that companies that make lots of earnings one year stick that money in a Giant Money Bin, and that money is fair game for whenever the gov’t decides to take some; and 2) that somehow the government can legitimately make a determination that because a company can pay a tax that they must pay a tax.

“We don’t believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don’t think that’s good economic policy and we think changing those incentives [i.e., raising energy prices across the board] is good for the country,” Geithner told the Senate Finance Committee at a hearing on the White House’s proposed budget for the 2010 spending year.